Balanced-budget rules and indeterminacy of the equilibrium unemployment rate

This article examines a new case of indeterminacy of the equilibrium unempl oyment rate due to the financing of government expenditure. Under a balance d-budget rule, the existence of multiple equilibria is a generic property o f the matching model of equilibrium unemployment, equilibria are Pareto-ran ked, and endogenous cycles occur for some values of the parameters. Governm ent can lead the economy to a high equilibrium by fixing the tax level and then matching its expenditure with its receipts.